A Good Indication Of How The Market Has Shifted

A report from the News Observer in North Carolina. “‘There is a negative mood in the market,’ said Stacey Anfindsen, a Cary-based appraiser with Birch Appraisal, who puts together the monthly Triangle Area Residential Realty Market Report. The buzz kill, Anfindsen said in a phone interview with The News & Observer, is the mortgage rates, which are going to continue rising.”

“Anfindsen’s assessment isn’t the only local report pointing a finger at mortgage rates. A quarterly report from Metrostudy noted that ‘builders in the third quarter were reporting signs of a slowdown in buyer traffic compared to 2017 and the first half of 2018, as home mortgage rates have started to rise alongside continuing new home base price escalations.'”

“The Metrostudy report also noted that wages might not be growing fast enough to keep up with the market’s price increases. ‘We are starting to see more price fatigue because we have had such high price increases for the past two years,’ said Amanda Hoyle, regional director of Metrostudy’s Raleigh office. ‘There are some buyers that are stepping back.'”

“Tom Gongaware, a general manager at Allan Tate Realtor’s Raleigh office, agreed that in the grand scheme of things rates are still low. But that doesn’t mean people are used to them rising, after so many years of the rates staying low.”

“‘Yes, interest rates have ticked up, but they are still very low,’ Gongaware said. ‘But I do think that sellers are realizing that we are transitioning to a more balanced market and are going to be a bit more realistic in their pricing, which will encourage buyers to come back.'”

From the San Francisco Chronicle in California. “In San Francisco, the number of homes with a price cut in October nearly doubled, to 238 from 124 last October, according to Realtor.com. That’s nothing compared to Santa Clara County, where the number of price cuts rose to 818 last month, more than six times last year’s number. Santa Clara County had been one of the nation’s hottest markets this year, and the Bay Area’s price appreciation leader until September.”

“Rich Bennett, a Zephyr agent in San Francisco, just cut the price on an 1,832-square-foot Victorian condo in popular Hayes Valley by $100,000. He listed the Page Street home in mid-October at just under $1.7 million, which was realistic considering it has three bedrooms, parking and a laundry porch and is ‘absolutely adorable,’ he said.”

“But the buyers didn’t come. ‘In October, we saw more inventory come on the market. The economics of the Bay Area haven’t really changed,’ Bennett said. But ‘if you don’t have people beating down your door after two to three weeks,’ it’s time to consider a price change.”

“Another condo just down Page Street from his listing also had a $100,000 price cut. It sold in February for about $1.4 million and went on the market again at $1.395 million in early October. Now it’s listed at $1.295 million, below its last sales price. ‘That is a good indication of how the market has shifted,’ Bennett said.”

“Even Palo Alto, famous for its multimillion-dollar teardowns, is seeing price reductions. Re/Max Realtor Karen Fink said she listed a house near Stanford University on a 1½-acre lot with ‘a ton of deferred maintenance’ for $4.1 million in mid-August. After reducing the price to $3.5 million, the Palo Alto property closed Oct. 30 for $3.18 million, nearly a million less than the original price.”

“In San Mateo, Dennis Pantano of Pantano Properties just sold a house on Texas Way for $1.6 million after four price cuts. He listed the 1,990-square-foot house for about $1.75 million in mid-June. But within 10 days, the number of listings in San Mateo around that price jumped to nine from two. Had he listed it in May, it would have had lots of offers, he said. ‘It’s an illustration that not every house sells at full price or over.'”

Went from cooling to chilling in Palo Alto. The RE market is now lacking the drivers that kept it inflated, running out of air… I went back to an article I read last month and thought the comments (especially from the realtors) provided some good insight / humor.

‘builders in the third quarter were reporting signs of a slowdown in buyer traffic compared to 2017 and the first half of 2018,

About two weeks ago I made this exact same statement on this site concerning Raleigh. I also mentioned that the mantra of “there is a shortage of homes for sale” was also absent. So some people in the field are feeling some of it.

Not sure if I want to show the boss this article verifying what he may or may not be noticing. I am non-revenue producing and we are the first to go in a downturn!!

‘My knee-jerk reaction when I read this Fast Company article about Boulder, Colorado’s new “bike-share-but-for-coffee-mugs” program wasn’t nuanced. “This is dumb,” I thought, shaking my head at those GORP-eating Keen-wearers in the Rockies. “Who needs a program to rent travel mugs?” I thought, until my much smarter coworkers pointed out that, probably, lots of people do.’

‘For background, here’s how the Vessel Works program operates: Customers can use an app to “rent” insulated travel mugs from coffeeshops; the service is free, but users must return the mugs to participating shop within five days to avoid being charged a replacement fee. The company bills it service as environmentally responsible; it also saves people the effort of washing their travel mugs or keeping one always stashed in their car. ‘

The Metrostudy report also noted that wages might not be growing fast enough to keep up with the market’s price increases.

Wages in real terms have been stagnant since the 1970s, while the Fed’s relentless debasement of the currency has eroded both purchasing power and quality of life for the 99%. Add in the Everything Bubble since 2009, and unaffordable housing has caused Americans to take on massive, unsustainable debt loads. Now tapped-out debt donkeys are finally reaching their breaking point and balking at signing on the dotted line for way overpriced shacks.

If you were a Millennial who watched prices driven skyward in recent years to the point where you saw no hope of ever being able to buy a home, then wouldn’t news that prices are becoming more affordable be a positive? Don’t let the gloomsters ruin the mood. Prices falling back to levels that align with buyer incomes at historical levels of affordability is an occasion for celebration.

The drivers of “the everything bubble”, and specifically housing bubble 2.0 are fading. a) Unconventional, speculative asset buyers (yield-seeking, foreign, flippers, and other assoc. speculators) looking for a place to park their hot potato CB printed hot money, are rapidly vanishing from the scene, as CBs start draining the punch bowl and the global economy slows. b) Once again, housing prices have been driven up to the stratosphere by virtue of (a), far beyond the reach of conventional shelter-buyers, who are seeing rapid asset price inflation, but negative (real) wage inflation. What’s now happening is a dearth of buyers, since speculators are heading for the exits due to end of easy money and the remaining high prices, while shelter buyers are priced out. Enter “air pocket” as demand was pulled forward, leaving “Wile E. Coyote (super genius) moment”.

Somebody must make bank on these tsunami-sized cyclical turns. Otherwise the CBs would work to chop them up into more surfable size.

Of course we shouldn’t discount the possibility that well-intended, though misguided, CB short-term volatility smoothing efforts inadvertently store up the energy to drive much larger, tsunami-sized turns of the cycle every decade or so.

“For 46 years, from 1951 to 1997, we were no more and no less rich than our economy grew. Which makes sense. That’s the neutral vision of monetary policy, where you’re not trying to pull forward future growth through leverage and easy money in order to create more wealth today.”

“For the past 20 years, however, we have had a series of wealth bubbles – first the Dot-Com bubble, then the Housing Bubble, and today the Financial Asset Bubble – that have made us richer than our economy grows. Each of these bubbles was intentionally “blown” by the Fed through monetary policy. That’s the tried and true method of creating a wealth bubble in the modern age of fiat money – you artificially lower the cost of money to encourage borrowing and leverage, which in turn pulls future growth into the present. It’s a neat trick so long as you can keep it going.”

“But that’s the problem, of course. The Fed can’t keep it going, not if it wants to satisfy its raison d’etre, which is to keep inflation bottled up, particularly wage inflation. Once wage inflation starts to pick up, the Fed ALWAYS stops blowing bubbles. Why? Because the Fed, like every central bank, was created to support Capital in its eternal war with Labor. It’s in the name. They are bankers.”

I remember when a newspaper headline on March 29, 2007 read “Bernanke says no recession in sight.” This referred to Fed chair at the time, Ben Bernanke. The subprime mortgages were starting an avalanche of defaults. In my Wellington Letter, I rang the warning bells that a financial crisis was ahead.

A few months later I decided to write my book, Prelude to Meltdown, predicting a global crisis in 2008. Of course, now we know that is exactly what happened.

But it wasn’t until late summer of 2008 when Wall Street analysts became cautious. By that time, many stocks had already had severe plunges. The S&P 500 was down 23% by the end of July 2008 when analysts were still talking about “bargain hunting” because there was “no recession” in their opinion.
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But they declared that much later, right? They never know it except in hindsight. Everybody that’s calling a recession a year from now makes me think eventually it’ll be backdated to sometime around now.

Actually George W Bush’s economist who called it in December 2007 got fired
for doing so. Henry Paulson subsequently came out with a “correction.” Less than a year later he was on his knees begging Nancy Pelosi to approve a Wall Street bailout.

The stock market has been plummeting and my own retirement portfolio has been shrinking.

Am I worried? Sure. But I’m still buying stocks.

Week after week lately, I’ve been stubbornly funneling part of my paycheck into diversified equity mutual funds in the hope of long-term gains, knowing full well that I’ve been losing money.

It’s not because I’m confident the market will start a big rally soon. I’m sticking with stocks precisely because I have no idea where the market is heading, and the statistics show that mistiming market rallies is excruciatingly costly. And I’m doing it out of faith in the future. Over the long run, the stock market has produced marvelous returns. I hope that will still be true, if I wait long enough.
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Earnings for S&P 500 companies grew by 25.8% in the third quarter, the strongest performance since the third quarter of 2010, when companies benefited from very attractive, recession-era comparable earnings.

Nevertheless, from the start of earnings season to the close of trade Friday, the S&P 500 index has fallen 2.7%, the Dow Jones Industrial Average m 1.1%, and the Nasdaq Composite Index 5.5%.
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The S&P 500 fell 1.6 percent this week, while the Dow Jones Industrial Average and Nasdaq Composite both declined more than 2 percent.

Technology, the biggest sector in the S&P 500 by market cap, was the second-worst performer this week, falling 2.5 percent. The sector dropped following a 5.4 percent decline in Apple. Wall Street analysts worry iPhone sales will slow down. Tech-related shares like Amazon and Netflix were also down 7 percent and 5.7 percent, respectively. Sharp losses in Nvidia dragged down the chips sector and the overall tech sector on Friday.
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